Is there a bigger bottom line opportunity for studios with VOD?
In the traditional analog PPV model, studios get about 45% of each sale, with cable operators getting 45% and the distributor such as iNDemand getting 10%. Studios get the same percentage but a guaranteed $1.90 per transaction with PPV on DirecTV.
Under current revenue-sharing models for videocassettes, studios get 40%-45% of each video rental fee.
Early VOD providers are offering studios a cut of 50%-55% for each transaction, according to Derek Baine of Kagan, which would be far more lucrative to studios even if the consumer appetite was the same for VOD as it is for homevideo.
But Tom Adams of Adams Media Research believes that after factoring in the cost of preparing movies for digital delivery as well as operating and marketing costs, electronic distribution will be no more profitable for studios than current physical distribution.
Merrill Lynch predicts cable operators will capture more than 40% of the homevid rental market over the next 10 years. Adams believes that vid rentals will remain largely the domain of video stores that will generate $12.8 billion in rentals in 2010 compared to $3.4 billion in VOD revenue.